Professional’s Pick – Speedcast

Managing Director, Medallion Financial Group

First started getting clients invested in Sept 2017. We included it in our October 2017 monthly report to clients.

What do you like about it?

The business is one of the world’s most trusted providers of end-to-end communications and IT solutions to the business operating in remote locations. Increasing reliance on big data and the need for businesses to be connected to the internet at all times are set to drive increased data demands for some time to come.

How is it better than its competitors?

A market leader, SDA leverages a large global network in the mobile satellite industry, with 39 strategically located teleports spanning the globe to deliver its services. For instance, the business services the likes of the Maritime, Enterprise, Telco, Mining, Government sectors with a particularly close relationship with the energy space where it currently provides its services to nine of the top 10 global drilling contractors.

What is your target price?

Around $6.00. The half year report is coming up in February. This will provide further details on how the company is travelling and may well lead to price target upgrades.

At what point would you sell it?

For now, we’re happy to hold. However if valuations started to become stretched, we’d consider reducing or selling. The company does have elevated debt levels, however rising cashflows from new contract wins gives us confidence in the company’s ability to manage that debt burden. In saying that, if growth in cashflows started to stagnate or even fall, we’d review our position and possibly sell.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

Every client is slightly different depending on portfolio weight and date of entry. However the price, when included in the Monthly report, was $4.57. Today it trades around $5.50, a 20% gain. We nevertheless see further upside potential.

Where do you see value?

SDA has won a number of key contracts in recent times highlighting the businesses strong industry position and an ability to grow organically. We expect demand for bandwidth to ramp up significantly in the next 3-5 years, which will help drive earnings growth. For a company that operates with attractive economies of scale as demonstrated by growing earnings transferring into expanding margins this is an attractive proposition.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.